September 4, 2008 - OPEC ministers meeting in Vienna on September 9 currently look unlikely to change official output targets, although the $40/barrel price fall from record highs above $147/b in early July could put the meeting's focus on tighter adherence to those limits.
UAE state news agency WAM, reporting from Vienna--where OPEC has its headquarters--on September 1 quoted an unnamed senior OPEC source saying the oil producer group was unlikely to change its current 29.673 million b/d target at the upcoming meeting.
But the source was also quoted as saying that OPEC needed to consider the various economic indicators and analysis predicting a sharp decline in
energy demand next year, and to try to work with other producers to avoid a repeat of the oil price crash of 1998, when prices slumped to $10/barrel.
In late 1997, OPEC raised its crude output just as the Asian economic slowdown slashed demand and sent prices tumbling.
"All reliable strategic energy studies agree that 2009 will see a marked decline in demand for crude oil," WAM quoted the source as saying. "This will
come as stocks are plentiful and production from non-OPEC producers is set to rise."
"This imbalance in market fundamentals will translate into continued oil price volatility, a sharper decline in global economic growth and a sharp fall in crude oil prices," the source added.
The International Energy Agency in August forecast that OECD oil demand would contract to 48.6 million b/d this year and then fall to 48 million b/d in 2009.
However, this lower OECD demand will be offset by increasing consumption outside the OECD, where demand is set to rise to 38.29 million b/d in 2008, up from last year's 36.88 million b/d, and then rise further to 39.74 million b/d in 2009.
Overall, therefore, the IEA sees world oil demand rising from 86.9 million b/d this year to 87.8 million b/d in 2009, an increase of 900,000 b/d.
OPEC's own latest forecasts of world oil demand this year and next, released last month, are similar to those of the IEA.
Both organizations, however, see demand for OPEC crude falling next year alongside rising supply from non-OPEC producers.
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The IEA's 2009 estimate of the call on OPEC crude is 31.1 million b/d, a drop of 500,000 b/d. OPEC's estimate of demand for its own crude next year is 31.33 million b/d, a 720,000 b/d drop from this year.
Both forecasts are well below the 32.643 million b/d that OPEC, using secondary sources, estimated its 13 members to have pumped in July.
Iran and Venezuela have been particularly vocal in recent weeks about the need to prevent prices slipping too far, but neither country is currently calling for official targets -- set at 29.673 million b/d for the 12 members bound by output agreements -- to be lowered.
On August 18, Venezuelan oil minister Rafael Ramirez said his country would propose an output cut if the "worrying trend toward lower oil prices" continued.
On August 28, however, Ramirez said that while a cut "remains a possibility," Venezuela favored leaving output unchanged.
"Crude inventory levels for the present time being look low, so while a reduction remains a possibility, Venezuela thinks that [current] levels should be maintained," Ramirez said.
Iranian oil minister Gholamhossein Nozari said on September 2 that Tehran would urge OPEC members to stick to their current output targets so as to rein in excess supply.
"Some OPEC members are providing the market with excess supply and producing more than their OPEC quota, therefore at the next meeting the members will request a stop to this excess supply," he said, quoted by official news agency IRNA.
Using secondary sources, OPEC's Vienna secretariat last month estimated OPEC-12 production at 30.3 million b/d in July, around 450,000 b/d more than the official target.
Crude oil prices have fallen sharply since their climb to record levels above $147/barrel in early July.
Despite US Gulf of Mexico oil production having been shut in ahead of Hurricane Gustav, prices dived as the threat receded, with North Sea Brent trading as low as $104.14/b on September 2--its lowest level in five months.
Both Iran's Nozari and Venezuela's Ramirez see $100/b as an appropriate price.
"This is the minimum price for oil," Nozari said on August 31 when asked if he thought $100/b was a reasonable price for oil.
"We firmly believe the price should stay at a level close to $100/barrel" for US light crude WTI, Ramirez said on August 18.
Any OPEC decision will be influenced heavily by the group's biggest producer, Saudi Arabia, and so far Riyadh has kept its cards close to its chest.
Having increased its production to around 9.7 million b/d over the past few months, Saudi Arabia is currently exceeding its 8.943 million b/d official OPEC target by more than 750,000 b/d.
Iran's Nozari, asked on September 2 about the impact Saudi Arabia's unilateral output increase had had on prices, pointed out that other members had also boosted output beyond official levels.
"The excess supply of oil in the market has affected the prices and it is not only Saudi Arabia that has increased supply, but increases from other
member nations have also had an effect [on price]," he said.
Barclays Capital analyst Paul Horsnell believes most ministers "will be looking for some price stabilization efforts," the first stage of which would involve Saudi Arabia moving back towards its official output target.
"They're in a mode whereby there is a bias towards taking oil off the market," Horsnell said on September 4.
Washington-based PFC Energy believes that "given the uncertainties surrounding future demand, OPEC is likely to err on the side of caution" and seek to prevent a potential supply overhang.
"This will necessitate removing around 600-700,000 b/d of actual production, which will translate into a curbing of official targets by around 1-1.2 million b/d," PFC said in a September 3 note to clients.
One scenario, which PFC described as "a strong possibility," sees an informal reduction of 200-300,000 b/d by Saudi Arabia--achieved mainly by increasing official selling prices, and a larger formal cut by OPEC as a whole at the December 17 meeting in Oran, Algeria.
This scenario is "a strong possibility," PFC said. But, it added, "we do not rule out the possibility of more decisive action next week, with the announcement of a limited official production cut then."
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